Hi

Ref the value of miles, my own figure is closer to 1 cent per mile. While this happens to be on the lower end of the scale, let me try and justify my value.

Lets take the utility approach, ie, what is the "utility" of the miles. Mind you, it is not the price of the ticket, but the price you are willing to pay for a "similar" ticket.

Let me illustrate the 2 points.
a. For example, while the walk up economy class fare might be USD 1000, one could get a 2 week advance purchase for say USD 300. Now, since most award requests would have some sort of a early purchase requirement, you should compare a similar fare.

b. Would you pay USD 4000 for a business class ticket in cash ? If you're a poor soul like me, most likely not. You'd pay USD 1000 for a coach ticket, and maybe USD 1500 for a biz ticket. So the utility value of a biz class ticket is only USD 1500.


A second point is that of the mileage earning opportunity cost of using the miles as a award. That is, if I were to take a paid ticket, then I would get miles and bonuses and special bonuses. By using the award, I don't get those. (In addition, I miss out on earning status, but let us ignore this for now).

Third, an award ticket is not really free free. You do pay taxes. So you need to subtract that from the calculation of the miles.

I did a basic formulation (based on the point of indifference) and the following equation comes up. Seriously, it makes sense!!

v <= (p - t) / (x + y)
where
v: value of miles
p: price (utility value) of the ticket
t: taxes
x: miles needed
y: miles earned (base+bonus)

Example::
Suppose a tix is available: 400
Taxes to be paid on an award ticket: 40
Miles needed: 25000
Miles earned: 5000

Value of miles: (400-40)*100/(25000+5000)=1.2 cents

This is a fairly realistic scenario. So, the value of the mile is approx 1 cent.

QED.


IaLTO